~ YOUR REALTOR

Monthly Archives: January 2016

Office space leasing activity saw 3.7 million sq ft of office space leased out in 2014 and 5.1 million sq ft during the last year. This is a 37% increase from 2014 and the vacancy levels have come down from 24% in 2014 to 15.4% in 2015.

The residential market in Chennai continues to be slow with buyers doing he wait and watch exercise. With developers launching very few projects both in commercial office space and residential space supply may be affected in the future.

The recent floods added to the woes of the home buyers and developers. Price growth was the slowest in the residential space. The brighter side was that the unsold inventory figures showed improvement. While apartments within price range of Rs 25-50 lakhs attracted buyers, the buyer sentiment remained low.

The first 20 cities to be developed as Smart Cities will be announced on Thursday, from about 97 cities chosen for the Smart City Challenge. These cities will have basic infrastructure through assured water and power supply, sanitation and solid waste management, efficient urban mobility and public transport, IT connectivity, e-governance and citizen participation.

The government will announce 40 more cities to be developed into smart cities in the subsequent years. The government is committed to inclusive development to reduce implications on national security.

The reason for stress on inclusive urban development is to avoid exploitation of the marginalized and the poor by the well to do sections of the society.

Emphasising on sustainable urban development, cities should be water positive through water harvesting, recycling and reuse of water, energy positive with each household resorting to renewable sources of energy like solar power, and community positive facilitating interactive neighborhoods.

The growing impact of climate change has to dealt with through green approach in construction. Other improvements include promotion of cycling and pedestrian pathways, provision of open spaces, transparent and responsive governance, and adoption of technology for efficient service delivery and infrastructure use.

States and urban local bodies have been empowered to identify, appraise and approve projects with his two urban ministries withdrawing from appraisal and approval of individual projects.

Starter homes indicate end of association with land owners and transitioning into self-owned property. Starter homes indicate what one can afford at that point in time. This is also a significant amount of money that is being invested on an appreciating asset.

Starter homes are transitional homes and will remain that way. It will be the home which will lay the foundation for the buyer to reach his maximum financial potential to buy another house. Hence the cost involved in the maintenance and other expenses will be low.

These would be decently sized homes with basic amenities, water and electricity. But for a buyer location is critical for starter homes, as easy commute and less expense on commute is important. A well connected public transport and retail outlets are important. Most of these locations identified for first homes will be affordable and emerging ones.

Informed buyers will definitely launch a detailed search for their first home. Some of the cheaper options may not be advertised and hence it is advisable to explore all options possible. Townships may be affordable and convenient as well.

Starter homes give you great experience with regard to expenses incurred for purchasing forever homes. Costs, expense, down payment EMIs all give a great insight to what is to be expected while purchasing another home and that is an experience one has to have firsthand. No amount of hearsay or tutoring will help as each one has their own unique financial situation.

The chronic shortage of housing continues, and with buyer’s indecisive about buying, the budget can look at certain changes to revive the sector.

Construction industry is likely to continue to be defined as work contract. This would require separation of goods from services vitiating a quintessential characteristic of a good GST.

This also mentions distortions emanating from rental of residential housing if it is kept outside GST. The construction industry has called for a temporary VAT reduction to 9%, to help affordability. The availability of finance remains an issue not just for those trying to buy but also for those developers building units.

Widely anticipated measures to support landlords who rent premises to social welfare recipients and promote investment in the private rented sector have failed to materialise today.

Experts estimate the total rental income potential of commercial Grade A stock in the top eight cities in India for REITS is $7.9 billion (approx. Rs. 51,800 crore ) by 2019. The total estimated rental income between 2015-19, from Grade A office space could provide REITs an opportunity to generate an estimated rental income of $5.4 billion (approximately Rs. 35,500 crore).

The upcoming Grade A supply of approximately 160 million sq. ft. is expected to add $2.5 billion (approximately Rs. 16,300 crore) in rental income between 2016 and 2019.

REITs will offer a slew of benefits to various stakeholders such as developers, investors, and the industry. REITs can proportionately invest in commercial properties across smaller cities that will help in rapidly developing the smaller cities while easing the pressure on the top few cities in India.

It will also provide occupiers with a wider choice of cities and tap into a larger pool of human resources. Moreover, the listing of REITs in India would encourage many mid-sized development firms to consider this avenue, as REITs would provide them with exits and an incentive to develop high-grade buildings.

Realtors demand tax sops for affordable homes and for restructuring loans and this, to tackle the slowdown and reduced demand.

The National Real Estate Development Council (Naredco) has sought infrastructure status for the housing sector and industry status of the entire real estate sector.

This would be a step which will ensure a different perspective to growth in the sector. Banks and the Government will then have to bring in reforms to encourage this sector which employs a huge chunk of skilled labor, to alleviate the woes of the sector. This will include taxes, Governmental approvals, human resource deployed, infrastructure, availability of raw materials and technology for the sector. The sector is also closely linked with other industries giving it the potential to turn around economies.

Conferring infrastructure status to affordable housing will help get single- window approval for these realty projects and other tax benefits. 2 core homes need to be developed by 2022. With sluggish sales affecting liquidity of the developers, developers are asking for moratorium for repaying bank loans. Will the budget 2016 address these?

Online sale of real estate is targeted at buyers who are looking at deals that will help them buy houses in the range of Rs 20 lakh and Rs 5 crore. The prices are normally lower than the card rates. Developers offer token discounts, latest gadgets and easy payment schemes to buyers.

The follow-ups post initial booking payment is done offline in most cases and the booking amount is as low as Rs 299 in certain cases up to Rs 100000 in certain others. These token advances are refundable in most cases.

This method cuts down negotiation, since buyers online usually check and compare prices before making their decision. Unlike luxury projects deals, which are struck one on one, realtors do not mind participating in online deals, offering discounts to generate cash flow.

Online marketing is also cost effective and has a far wider reach, but it is impossible to know the real value proposition and opportunities for bargain is less.

It is important to check the locality/property and do the due diligence. Legal opinion and other aspects concerning prompt delivery need to be spoken and understood.

That is why experts still suggest that a face to face meeting and a site visit is essential, before deciding where you park your money.

The Government is set to reduce the interest rates on small savings, which means bankers and savers will now face challenges since there would be lower returns from the currently high yielding Post Office savings schemes, NSC and PPF and other products. With inflation under control at 6% and the interest rates reduced policy makers are looking at reducing lending costs to provide boost to investment.

Investors or savers have been parking money in financial assets with both prices of both gold and real estate being hit. Domestic flows to equities have increased and over the last 20 months, inflows have exceeded the aggregate inflows in the preceding 10 years. The last nne months saw inflows of over Rs 70,000 crore in equity markets and Rs 15,000 crore in the remaining period.

Many investors prefer bank deposits to equity and debt schemes that have better returns. Added to this the Government is keen to push up investment rate to around 38 per cent. Senior citizens who have deposited their entire lives savings in bank term deposits are worried as well. This is the time when investors shift money to other financial assets, banks fear.

These are the few demands investors seek in Budget 2016, to offset the losses for individual savers.

An increase in the tax deduction limit, from Rs. 1.50 lakh to Rs 2.5 lakh – Rs 3 lakh under 80c of Income Tax Act.

Tax deduction for interest of above Rs. 50,000 as against Rs. 10,000, currently.

Bankers have asked the finance ministry to increase the returns of the depositor with inflation-adjusted post tax returns by reducing the lock-in period eligible for tax rebate to one year from five years. Currently, only 5-year term deposits get tax break.

If tax break is allowed for 1 year deposits, more depositors will come into the system. The Government will consider this as the major chunk of this money going into infrastructure financing.

Coming to real estate, experts feel that mutual funds should be included in the list of investment avenues to park real estate sale proceeds. Currently to save capital gains the proceeds are invested only in the bonds of NHAI or REC.

Further, pension regulator, PFRDA, has been asking for tax incentives so that the National Pension Scheme (NPS) can be on par with Employees’ Provident Fund Organisation (EPFO) products. Right now it’s EET (no tax during contribution and accumulation but taxed during withdrawal) for NPS and the PFRDA is batting for EEE (no tax at any of the stages) structure.

Life Insurance Corporation is looking for tax amendment as it has witnessed a 24 per cent fall in premium of sale of policies.

All this, when the government is readying itself to lower corporate tax and eliminate tax breaks. Linking inflation to investment returns has not worked here. There are no benchmarks. With quite a few educated, informed brains in the system, this is a challenging time for the Government to ensure comfortable living to its citizens. Isolating citizens on the social media for statements they make about leaving the country may not work for long. The question is, is the Government doing enough to ensure that its citizens invest, live, bring industry, and do business and thrive in the country. Or is it helping a privileged few? Time for serious thought!

Embassy Group plans to raise Rs 5,000 crore to fund expansion of projects in commercial real estate, hospitality and warehouses across India. Backed by equity major Blackstone for its commercial property venture, for expansion in building new offices, growing its hotel business ten folds and setting up warehouses and factories for global players and e-commerce firms such as Amazon, Embassy has a good commercial portfolio for its investors. . Besides Blackstone, Embassy has backing of $175 million from Warburg Pincus for its logistics joint venture – Embassy Industrial Parks, which will focus on building warehouses for e-commerce firms such as Flipkart and Amazon and factory space for global manufacturers who come to India.Snapdeal is launching a week long real estate shopping festival offering properties in a price range of Rs 20 lakh to Rs 5 crore, from builders like TVS Emerald, Provident Housing, Runwal Group, Atul enterprises, Lavasa, Central Park, Ajanara Homes, Mahagun India and Gulshan Homz.
Snapdeal would be bridging the gap in price with customers and participating Developer/Channel partners, giving buyers an opportunity to purchase projects at 6-8% lower price than the market.HDFC Property Fund, the mortgage lender arm of HDFC, has exited Embassy group’s Bengaluru project with returns of 2.4 multiples, an investment of Rs 207 crore sold for Rs 409 crore. HDFC fund’s exit follows the recent exit by New York Stock Exchange-listed Apollo Global Management’s exit from super luxury project Ahuja Towers in Mumbai at Rs 460 crore or at multiples of 2.3 times. The fund manager is looking to make 2x returns from its Rs 160-crore investment in Lodha’s residential project in Hyderabad. The fund is also looking to exit its investment in the project of Fortuna group in Bengaluru, Embassy group’s IT Park in Bengaluru and entity-level investment in New Consolidated Construction Company.

Tata housing, the realty arm of Tata Group may tie up with Amazon India for marketing its properties in India. The company has sold over 2000 apartments through online platform during the last 2 years. The online platform will sell Tata Housing’s portfolio of premium and luxury properties across eight cities.

Earlier, the Mumbai-based developer was selling flats online through Google’s Great Online Shopping Festival, Snapdeal and Housing.com. Tata Housing has recently sold luxury unit in its project at Kasauli to an NRI customer for Rs 5.5 crore online.

With real estate facing a huge slowdown for the last 2-3 years leading to huge delays of about 7-8 years in project delivery, real estate players are increasingly taking the online route to sell their flats at a discount. DLF one of the largest realty firm is also selling online through Snapdeal.

Established in 1984, Tata Housing is a closely held public limited company and a subsidiary of Tata Sons. It is developing 70 million sq ft under various stages of planning and execution and an additional 19 million sq ft is in the pipeline.

Millennials are by far the most redefining generation to have appeared over the past five decades, with several traits driving their lifestyle choices. They have a much higher acceptance of diverse lifestyles than the previous generations. Millennials have now started displaying a decisive return to conservative behaviors and choices; show a marked tendency towards traditional values.

In India, millennials see good education as first important step to achieve their life goals, and will diligently pursue a degree in their chosen academic fields. Loving and respecting their parents is a trait. They will conscientiously avoid vices in order to protect their health, seek to have stable marriages and will bring up their children with the right kinds of values.

Millennials consider stability an important factor and hence owning a home earlier is important. The previous generation gave less weightage to investment in real estate and considered this as secondary to stock exchange investments. They chose to live in rented homes and use their funds to invest in the market. Indian millennials have therefore placed home ownership very high on their list of priorities.

The fact that these millennials are tech savvy and avid seekers of knowledge, especially in subjects that affect their life goals, the process of finding and buying a home is driven by a need to understand all the variables, study all available options and then make a prudent purchase decision.

However, millennials who are dedicated investors do not wish to take high risk. This is one of the reasons why mutual funds are popular among them, since they present an acceptable level of risk coupled with reliable returns. Though they are conservative with their hard-earned money, they will not purchase inferior. Such an attitude also reflects in their choice of homes, which is why most of them will deal only with branded developers who are adequately capitalised and have a proven track record for consistent quality and timely delivery of their projects and hence safety of their investments. They look for better business practices as well, which means a developer – who need not necessarily represent a brand but – who will deliver quality and a high level of service is preferred.

Brands are not insulated from market dynamics beyond a certain point. If the slowdown is deep and long term, even the best brands will be impacted. Brands have to work hard to keep the advantage. A good brand is resilient but only if it gets everything else right. Buyers need to be aware of the financial background of the brands. The best brands may not have the best results reflecting on their accounting books.

Millennials do not look at brand loyalty, and are open to changes that will result in changes in fortune. So do you want to follow the millennials ? If yes, time to wake up and start making serious enquiries.